A long-vacant 1920s office building in a recovering neighborhood of downtown Los Angeles has been purchased by prominent developers who intend to make it into a hip hotel for young people traveling on a budget.
The 13-story Commercial Exchange Building at 8th and Olive streets is in the midst of a rapidly gentrifying area where new apartments, restaurants, stores and a hotel have recently opened or are under construction.
Its new owner is Sydell Group Ltd., which has developed such au courant inns as the Ace Hotel in New York and the Line on Wilshire Boulevard in the Koreatown district of Los Angeles. Sydell's financial partners are Yucaipa Cos. and AllianceBernstein.
Terms of the sale were not disclosed, but the Los Angeles partnership selling the building was asking for more than $15 million.
Sydell will develop the Commercial Exchange Building in partnership with Yucaipa Cos., a Los Angeles investment company headed by billionaire Ron Burkle. The two firms formed a joint venture called Freehand to develop hotels that combine the social culture of a hostel with the amenities of a trendy hotel.
There is a Freehand in Miami Beach, and the Freehand Chicago is under construction.
Plans for the Freehand in Los Angeles call for more than 200 rooms that would be a mix of conventional guest rooms and larger rooms with as many as six beds. Those beds could be reserved as a group or individually, as is common in youth hostels around the world.
The hotel is to have a rooftop pool and lounge. Plans also call for a living-room-like lobby, a bar, a restaurant and street-level stores.
"The Freehand is designed as a place for people who want to interact with other guests and with locals," said Andrew E. Zobler, chief executive of Sydell. "It's set up for people who want to have experiences as opposed to people who just want to sleep and get in and out."
Improvements will cost about $40 million, he said. Construction is anticipated to begin in the third quarter of 2015 and be complete in summer 2016. The makeover is being designed by Killefer Flammang Architects of Santa Monica.
The tall neon blade sign that says "Commercial Exchange Bldg." at 8th and Olive streets will remain and be part of the hotel, Zobler said.
"We think the building is quite beautiful and we really like its location," he said. "We feel like it's sort of a nexus in downtown."
Interest in acquiring the old steel and concrete building was intense, said real estate broker Phillip Sample of CBRE Group Inc., who represented the sellers. Potential buyers considered making it into apartments, creative office space or mixed-use space.
"We had people looking at it from every angle," Sample said. "It's one of the best-located buildings in all of downtown."
The building was completed in 1924 after that southern section of downtown Los Angeles was rezoned from an upscale residential neighborhood to commercial use.
City officials decided to widen Olive Street in the mid-1930s, and the owners of the Commercial Exchange Building at 8th and Olive were obligated to remove a nearly 10-foot-wide section from the middle of the building. Engineers reunited the two pieces by sliding the western portion east, thereby opening up more space on Olive Street. The process cost $60,000, The Times reported in 1935. That would be more than $1 million in 2014 dollars.
Owl Drug Co. was once headquartered in the building, Sample said. Another occupant was "Tarzan" author Edgar Rice Burroughs, who operated his own publishing company.
That area of downtown fell out of favor in the decades after World War II as department stores followed their customers to the suburbs and white-collar businesses moved to newer offices closer to the 110 Freeway.
Now it is one of the fastest-growing neighborhoods in the state. A Whole Foods market is under construction in a new apartment complex across the street from the Freehand. And the Ace Hotel Los Angeles opened earlier this year on nearby Broadway, which is experiencing a commercial renaissance.
The Freehand will be another attraction for the neighborhood, City Councilman Jose Huizar said.
"As we continue to increase our hotel stock," he said, "this project will provide a unique option to travelers and those seeking a creative, social experience as they explore downtown."